The net job losses in Pakistan were estimated at 0.7 million in 2020 as the country’s gross domestic product (GDP) growth became negative 1.5% in the wake of lockdowns imposed to contain the spread of Covid-19.
According to a report prepared by the Lahore School of Economics, the loss of jobs and livelihood was mainly found in the informal sector, where 0.6 million people lost employment, whereas in the formal economy, only 0.1 million people lost their jobs.
The government’s economic policy in 2020 had two objectives - to generate growth and curb inflation raging at a pace of 12-14%.
Controlling the exchange rate to improve the current account balance by raising exports and curbing imports, the government chose wisely in this tradeoff, the report said.
The study revealed that with the lockdowns, lost output, employment and income, inflation was not demand-led, but it was supply-led. The government lowered the interest rate in the first quarter of calendar year 2020 from 13.75% to 12%, then reduced it to 8% in the second quarter to enhance growth.
The report added that the government’s policy choice had been more difficult. It chose to free the exchange rate, allowing it to depreciate from Rs154 against the US dollar in January 2020 to Rs160 by the end of the year.
This has had the unfortunate outcome of leaving inflation stubbornly high at about 8% per annum from the second quarter to the fourth quarter of 2020.
The government’s policy choice had been to prioritise economic growth - perhaps curbing the contraction in GDP growth to -1.5%, at the expense of inflation, it said.
Impact of Covid on poverty
In 2020, the annual extreme poverty headcount ratio was estimated at 5.49% of the total population. In comparison, the extreme poverty headcount ratio was 4.43% of the total population in 2019.
Close to 2.5 million people in Pakistan were driven into extreme poverty due to the pandemic alone in the year under review. To cushion the impact of the pandemic, the poor must be compensated for the loss of income with the help of unconditional cash transfers, the report said.
Based on estimates of poverty gap, the report stressed that annual transfer of $1.02 billion was needed to bring the extremely poor up to the poverty line.
Published in The Express Tribune, May 20th, 2021.
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